In forecasting this year, chief financial officer Amy Hood said the company will continue to feel the effect of the PC market this quarter, with revenue from computer makers that it collects, about 65% of total Windows division revenue, declining “by mid-teens” on a percentage basis. The company believes its “server and tools” division will see “high single digit” growth.

The “business division” should see a rise of “mid-single digits” in the 85% of the division that comes from companies, with the balance, from consumers, lagging because of the weak PC market, which affects sales of individual copies of products such as Microsoft Office. Online services revenue will see “low double digits” growth, based on services growth, offset by a decline in display advertising. The entertainment group, which sells the Xbox game console, will see a “low single digits” revenue decline in the pause before the new version of the machine, “Xbox One,” becomes available.

Also in Q1, the company will see further impact from the ”Surface RT” tablet computer. That device cost Microsoft $900 million in write-downs to inventory last quarter, reducing EPS by 7 cents. Hood said that this quarter, cost of goods sold is expected to rise by over 20%, and will “reflect Surface as well as the impact of the capital expenditures we made in fiscal 2013.”

For the full year, the company expects operating expenses to be lower than originally thought, at $31.3 billion to $33.9 billion

On a positive note, the company said on the call that its “Office 365” online version of Microsoft Office is on a “run rate” of making $1.5 billion annually, which is half again as much as the $1 billion rate Microsoft claimed at the end of Q3.

Hood said the company was not giving much additional information about the massive reorganization announced a week ago, choosing instead to provide an update on that at its analyst day in September.

In one of the first notes out of the chute from the sell side this afternoon, Citigroup’s Walter Pritchard, who has a Buy rating on the shares, and a $35 price target, wrote just before the call that the report was “the sloppiest quarter in memory,” with revenue “sloppy all around,” with both Server and Tools revenue and Business Division revenue missing his expectations.

“With double digit billings in each of these businesses [Server and Business], it is likely the transition to annuity and cloud hurt the recognized revenue here.”

Even excluding the 7-cent hit from the Surface inventory adjustment, profit miss of 15 cents was driven by the above-noted revenue shortfall and higher COGs and OpEx.”

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.